Continuous Learning - Lots of surprises the way FIIs go bell and hell ...
Well, already 5 months since I wrote last here.. Apologies for that friends but I was trying to learn & analyze the recent highs & lows on Nifty whole summer. You see, the market is primarily ruled by FIIs since they are the cash rulers across global markets. I do predicted in October that FIIs will have the routine post Diwali selling bringing a modest correction which did not happened. Moreover, to my surprise they even not sold in last December - a normal FII trend across EM markets after a cumulative buying in last 18 months - to walk away & show profits to their customers & stakeholders. They sold post mid-Jan this FY which many thought should have happened before - not to ignore that Sensex PE almost reached 26 before the panic button was pressed by FIIs & DIIs too (I will talk about this magic Sensex PE range of 25-28 in depth sometime). Even when the post Jan correction was going smoothly this year when post budget rally by FIIs in a span of 3 weeks totally took me by awe. I thought FII will take Nifty to hit that magical PE range but it turned out to be a short covering when the same FIIs pulled the market down to 5400 levels in same time - definitely there was the Libyan issue, Japanese Tsunami & European debt crisis which added fuel to fire.
Formula 1 : Trend of small caps
I found out that most of the stocks I recommended last year are small caps with market capital less than 200 crores. Many of my stocks got beaten badly in this recent 15% correction from 6350 Nifty levels to 5400 now this summer. Its important to understand movement patters of small caps - normally they participate in last leg of a bull rally when they can even command a PE of 12+ wrt to their earnings. Else rest of times (correction phase or consolidation times) they are tentative always for a beating & get stagnant in range of 2-5 forward PE. So its important to understand business models & revenue growth of such firms deeply. In corrections, small caps are the first to be sold out on counters and hence, an investor should sell small caps once a bull rally reaches its peak - historically, market PE of 25-28 is a signal for a U- turn on Nifty. The 2001 crash, 2008 Jan reversal and 2011 Jan corrections after peak of 26-28 PE suggest that FIIs consider this range as the boundary conditions for liquidity. It is this time one should get out of small caps firstly …. Also not to forget, many of these small caps have very small equity base and with a marginal profits they can show heavy EPS in some Qs (so beware) and small caps with market cap of less than 50 crores can shut their business too if they default...
The learning continues -
As I said, small caps have their patterns & if traded properly in time & on specific times, they will give you fastest and maximum ROI compared to mid & large caps. All these summer I walked through several mid cap scrips and blue chips too & deduced that yes, they are FIIs paradise - reasonably too. There are lot of mid caps I see very attractive in current times in some specific industry sectors I will talk about in my coming post - stay tuned!
Additionally, I see a few large caps which got listed in recent years which are in their first bull run & quite cheaply placed on bourses.
Well, already 5 months since I wrote last here.. Apologies for that friends but I was trying to learn & analyze the recent highs & lows on Nifty whole summer. You see, the market is primarily ruled by FIIs since they are the cash rulers across global markets. I do predicted in October that FIIs will have the routine post Diwali selling bringing a modest correction which did not happened. Moreover, to my surprise they even not sold in last December - a normal FII trend across EM markets after a cumulative buying in last 18 months - to walk away & show profits to their customers & stakeholders. They sold post mid-Jan this FY which many thought should have happened before - not to ignore that Sensex PE almost reached 26 before the panic button was pressed by FIIs & DIIs too (I will talk about this magic Sensex PE range of 25-28 in depth sometime). Even when the post Jan correction was going smoothly this year when post budget rally by FIIs in a span of 3 weeks totally took me by awe. I thought FII will take Nifty to hit that magical PE range but it turned out to be a short covering when the same FIIs pulled the market down to 5400 levels in same time - definitely there was the Libyan issue, Japanese Tsunami & European debt crisis which added fuel to fire.
Formula 1 : Trend of small caps
I found out that most of the stocks I recommended last year are small caps with market capital less than 200 crores. Many of my stocks got beaten badly in this recent 15% correction from 6350 Nifty levels to 5400 now this summer. Its important to understand movement patters of small caps - normally they participate in last leg of a bull rally when they can even command a PE of 12+ wrt to their earnings. Else rest of times (correction phase or consolidation times) they are tentative always for a beating & get stagnant in range of 2-5 forward PE. So its important to understand business models & revenue growth of such firms deeply. In corrections, small caps are the first to be sold out on counters and hence, an investor should sell small caps once a bull rally reaches its peak - historically, market PE of 25-28 is a signal for a U- turn on Nifty. The 2001 crash, 2008 Jan reversal and 2011 Jan corrections after peak of 26-28 PE suggest that FIIs consider this range as the boundary conditions for liquidity. It is this time one should get out of small caps firstly …. Also not to forget, many of these small caps have very small equity base and with a marginal profits they can show heavy EPS in some Qs (so beware) and small caps with market cap of less than 50 crores can shut their business too if they default...
The learning continues -
As I said, small caps have their patterns & if traded properly in time & on specific times, they will give you fastest and maximum ROI compared to mid & large caps. All these summer I walked through several mid cap scrips and blue chips too & deduced that yes, they are FIIs paradise - reasonably too. There are lot of mid caps I see very attractive in current times in some specific industry sectors I will talk about in my coming post - stay tuned!
Additionally, I see a few large caps which got listed in recent years which are in their first bull run & quite cheaply placed on bourses.
Nice post :)
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